Due diligence a sound strategy against fraud


Marlin Horst head shotA defrauded corporate lender who unsuccessfully tried to sue the government to cover $1.8 million in losses was always facing an uphill struggle, Toronto corporate lawyer Marlin Horst tells

A better strategy for the lender would have been to conduct more stringent due diligence at the outset rather than suing the Crown after the fact, says Horst, partner with Shibley Righton LLP.

The Ontario Court of Appeal matter involved a lender who advanced $1.8 million in mortgages to a man on the grounds he was the sole owner and officer of a company. The loans were advanced after the lender checked the Ministry of Government and Consumer Services' corporate registry and found the man was listed as a director and officer.

However, it transpired that this was a complete fabrication and the man had merely filed a change order to the registration with no authority whatsoever.

The appellant argued that the ministry owed a duty of care to reasonably ensure the accuracy and reliability of the information it collected, maintained and disseminated for a fee when it knew or ought to have known that the appellant would rely upon such information.  

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